Spain Tax Restructuring: International Group Case | BMC

Client Background

A Spanish industrial group with consolidated revenues of €85 million had grown over two decades through a combination of organic expansion and selective acquisitions, building a manufacturing and commercial presence across Spain, Germany, France, Italy, Poland, and Portugal. The group manufactured precision industrial components and distributed them through a network of country-specific commercial entities, each serving local market customers in the automotive and industrial equipment sectors.

The group’s CFO had long suspected that the corporate structure was tax-inefficient but had never commissioned a systematic analysis. The group’s Spanish parent bore a disproportionate share of the group’s total cost base — including management fees, R&D allocation, and finance costs — while the profitable commercial subsidiaries in Germany and France operated at thin margins under arrangements that had been set informally rather than documented at arm’s length. An external review commissioned from BMC confirmed the suspicion: the group was paying an effective corporate income tax rate of 31% on consolidated profits, against a sector average of approximately 22–23%.

The Challenge

Three structural problems were compounding each other. First, the absence of formal transfer pricing documentation had allowed costs to accumulate in the Spanish parent without proper market-based justification — an arrangement that both overstated the Spanish entity’s losses and exposed the group to transfer pricing adjustments by any of the five tax authorities with inspection jurisdiction over the group’s operations. Second, the intercompany financing model had been established years earlier using loan terms that had never been adjusted to reflect current market rates, generating above-market interest payments that created double taxation across jurisdictions. Third, despite Spain’s ETVE regime offering 100% exemption on dividends received from EU-resident subsidiaries, the group had never implemented an ETVE holding structure — meaning every dividend received from German, French, Italian, and Portuguese subsidiaries was being included in the Spanish parent’s taxable income at the full 25% rate.

The restructuring mandate had an additional constraint: any solution had to be fully compliant with ATAD I and II, OECD BEPS standards, and the GAAR requirements that test whether transactions have genuine economic substance beyond tax savings.

Our Approach

The project was structured in four phases over 18 months, each building on the documentation and structures established in the previous one.

Phase 1 — Transfer pricing documentation. We prepared the Master File and Local Files for all six entities in the group, conducting a functional and comparability analysis that identified each entity’s contribution to the value chain and the appropriate transfer pricing methodology for each transaction type. The Transactional Net Margin Method (TNMM) was identified as the most robust approach for the group’s manufacturing and distribution transactions, supported by benchmarking studies using EU industry databases. All intercompany arrangements were repriced to arm’s length levels and documented.

Phase 2 — ETVE holding structure. A Spanish holding company was established under the ETVE regime and interposed between the operating parent and the European subsidiaries. This restructuring, executed using the tax-neutral regime under Articles 76 et seq. of the LIS, eliminated any Spanish tax cost on the interposition. The ETVE structure provided full exemption on dividends from the EU subsidiaries from the first year, replacing the full 25% tax that had previously applied.

Phase 3 — Intercompany financing restructuring. We replaced the above-market intercompany loan arrangements with a centralised treasury management structure (cash pooling) at documented arm’s length interest rates, supported by a formal cash pooling agreement and benchmarked interest rate analysis. This eliminated the double taxation of interest across jurisdictions and reduced the group’s overall cost of internal capital.

Phase 4 — CbCR and transparency compliance. We prepared the Country-by-Country Report for the first filing year and aligned the group’s documentation with the transparency standards required by each of the five national tax authorities. We designed a CbCR maintenance process integrated into the group’s annual close, ensuring the filing would be consistent and current-year compliant in all subsequent years.

Results

By the end of the second fiscal year under the new structure, the group’s consolidated effective tax rate had fallen from 31% to 22%, generating annual tax savings of €2.4 million. The transfer pricing documentation was reviewed by the AEAT in a limited verification procedure — an audit specifically focused on the arm’s length nature of the new transfer pricing arrangements — which concluded with no adjustments or reassessments.

The group now operates with a fully documented structure capable of responding to any coordinated cross-border inspection across its five operating jurisdictions, with the CbCR maintenance plan integrated into the annual close process.

Key Takeaways

International tax efficiency in a multi-country group is not a single restructuring event — it is a documentation and maintenance discipline. The ETVE structure and cash pooling provided the structural improvements, but the protection against inspection and adjustment comes from the quality and consistency of the transfer pricing documentation across all jurisdictions simultaneously. A structure that is well-documented in Spain but poorly supported in Germany or France is not defensible in a joint audit. The 18-month timeline for this project was not determined by the complexity of any single step but by the need to sequence the documentation quality across all six entities before implementing the structural changes.